Share-Based Compensation Plans

For the twelve months ended in fiscal year 2019 and 2018, the Company recognized share-based compensation expense of $1.4 million and $1.8 million, respectively. These expenses are included in Selling, administrative and other operating costs in the Company’s Consolidated Statements of Operations.

2019 Equity Incentive Plan

On May 1, 2019, the stockholders of the Company approved the Company’s 2019 Equity Incentive Plan (the “2019 Plan”). The 2019 Plan permits the granting of (1) stock options, including incentive stock options, (2) stock appreciation rights, (3) restricted stock, (4) restricted stock units, (5) performance awards, and (6) other awards valued in whole or in part by reference to or otherwise based on our common stock (as defined in the 2019 Plan, “other share-based awards”). Subject to adjustment as provided in the 2019 Plan, up to an aggregate of 2,500,000 shares of the Company’s common stock will be available for awards under the 2019 Plan, plus any shares granted under the Company’s 2015 Equity Incentive Plan that become available for awards under such plan.

Equity Awards

During fiscal 2019, the Company granted long-term incentive awards in the aggregate of 297,229 performance stock units (“PSUs”) to executive management and 430,563 restricted stock units (“RSUs”) to certain employees including executive management. Additionally, an annual equity grant totaling 86,405 RSUs was made to the Board of Directors of the Company (“Board of Directors”).

The PSUs are eligible to vest in three equal tranches at the end of each performance period. Vesting of the PSUs is dependent on the achievement of the adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) margin percentage goals based on adjusted revenues at the end of each fiscal year end of the one-year, two-year and three-year performance periods and provided that the employees remain employed with the Company on each of those vesting dates. The payout percentages can range from 0% to 150%. The RSUs for the employees vest in equal annual tranches over three years, provided the employees remain employed with the Company on each of those vesting dates. The RSUs for the Board of Directors vest in one year from the grant date provided that the director provides continued service through the vesting date. The grant date fair value for the PSUs and RSUs is measured using the closing stock price on the grant date. The total fair value of the PSUs and RSUs granted during fiscal 2019 was approximately $1.2 million and $2.1 million, respectively.

There were no grants of stock options in fiscal 2019. For stock options granted in the prior fiscal years, the fair value of the option grants was estimated using the Black-Scholes option-pricing model, which requires estimates of key assumptions based on both historical information and management judgment regarding market factors and trends. For RSUs granted in the prior fiscal year that are classified as equity awards, the grant date fair value is measured using the closing stock price on the grant date. These awards vest in equal annual tranches over three years, provided the employees remain employed with the Company on each of those vesting dates. The Company granted 133,181 stock options in fiscal 2018 with a total grant date fair value of $0.2 million.

Determining Fair Value - Stock Options

The fair value of the option grants under both plans was estimated using the Black-Scholes option-pricing model, which requires estimates of key assumptions based on both historical information and management judgment regarding market factors and trends.

Expected volatility - We developed the expected volatility by using the historical volatilities of the Company for a period equal to the expected life of the option.

Expected term - We derived our expected term assumption based on the simplified method due to a lack of historical exercise data, which results in an expected term based on the midpoint between the graded vesting dates and contractual term of an option.

Risk-free interest rate - The rates are based on the average yield of a U.S. Treasury bond, with a term that was consistent with the expected life of the stock options.

Expected dividend yield - We have not paid and do not anticipate paying cash dividends on our shares of common stock; therefore, the expected dividend yield was assumed to be zero.

The weighted average assumptions used to estimate the fair value of stock options for fiscal 2018 were as follows:



	Fiscal Year Ended
	October 28, 2018
Weighted-average fair value of stock option granted	$1.75
Expected volatility	40.0%
Expected term (in years)	6.00
Risk-free interest rate	2.73%
Expected dividend yield	0.0%

The grants vest in equal annual tranches over three years, provided the employees remain employed on each of those vesting dates. Compensation expense for the stock options is recognized over the vesting period. The stock options expire 10 years from the initial grant date and have a weighted average exercise price of $4.10 for fiscal 2018.

Liability Awards

During fiscal 2018, the Company granted 276,396 PSUs and 491,138 RSUs that are classified as a liability at fair value, which is computed using a Monte Carlo simulation and re-measured periodically based on the effect that the market condition has on these awards. The liability and corresponding expense are adjusted accordingly until the awards are settled. As of the fiscal year ended November 3, 2019, the total fair value of the remaining PSUs and RSUs was approximately $0.1 million and $0.5 million, respectively.

Vesting of the PSUs is dependent on the achievement of target stock prices at the end of each of the one-year, two-year and three-year performance periods. The ending stock price is the average price of the last 20 trading days prior to and including the final day of each performance period. The payout percentages can range from 0% to 200%. The RSUs vest in equal annual tranches over three years, provided the employees remain employed with the Company on each of those vesting dates.

Upon vesting, the PSUs and RSUs may be settled in either cash or stock at the Company’s election, with any stock settlement being subject to the Company having a sufficient number of shares then available under its equity incentive plan to satisfy such awards. Any awards settled in cash will be capped at two times the Company’s closing stock price on the grant date, multiplied by the number of awards vesting. During the third quarter of fiscal 2019, the first tranches of the PSUs and RSUs that vested were settled in stock.

In prior years, the Company granted phantom units in the form of cash-settled RSUs to certain senior management level employees. The total fair value at the grant date was approximately $0.3 million with a weighted average fair value per unit of $4.35. The units vest in equal annual tranches over three years, provided the employees remain employed on each of those vesting dates. These awards are classified as a liability and re-measured at the end of each reporting period based on the change in fair value of one share of the Company’s common stock. As of the end of fiscal 2019, the total fair value was less than $0.1 million and 6,012 phantom units were outstanding.

Summary of Equity and Liability Awards

The following tables summarize the activities related to the Company’s share-based equity and liability awards for the fiscal year ended November 3, 2019:



Stock Options	Number of shares		Weighted average exercise price		Weighted average contractual life (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at October 29, 2017	2,499,922		$	6.32	8.20	$	6,051
Granted	133,181		$	4.10	—	$	—
Forfeited	(1,033,063	)	$	7.16	—	$	—
Outstanding at October 28, 2018	1,600,040		$	5.25	7.27	$	—
Exercised	(200,000	)	$	4.35	—	$	—
Forfeited	(335,972	)	$	5.42	—	$	—
Expired	(460,584	)	$	5.36	—	$	—
Outstanding at November 3, 2019	603,484		$	6.28	6.81	$	—
Unvested at November 3, 2019	108,695		$	—	—	$	—
Exercisable at November 3, 2019	494,789		$	6.75	6.55	$	—



	Number of		Weighted Average
Performance Share Units	Shares		Grant Date Fair Value
Outstanding at October 29, 2017	—		$	—
Granted	276,396		$	3.38
Outstanding at October 28, 2018	276,396		$	3.38
Granted (a) (b)	377,833		$	4.05
Forfeited	(179,981	)	$	3.61
Vested	(97,262	)	$	3.82
Outstanding at November 3, 2019	376,986		$	3.90
(a) Includes the incremental issuance of shares related to the Fiscal 2018 PSU grant.
(b) Includes the incremental shares for the first tranche of the fiscal 2019 PSU grant based on attainment of the fiscal 2019 EBITDA margin percentage goal. These shares will be issued upon vesting.



	Number of		Weighted Average
Restricted Stock Units	Shares		Grant Date Fair Value
Outstanding at October 29, 2017	338,966		$	5.20
Granted	491,138		$	3.23
Forfeited	(40,769	)	$	4.62
Vested	(206,504	)	$	5.33
Outstanding at October 28, 2018	582,831		$	3.53
Granted	516,968		$	4.11
Forfeited	(236,035	)	$	3.73
Vested	(196,682	)	$	3.75
Outstanding at November 3, 2019	667,082		$	3.86

As of November 3, 2019 total unrecognized compensation expense of $2.6 million related to PSUs, stock options, RSUs and phantom units will be recognized over the remaining weighted average vesting period of 2.1 years, of which $1.8 million, $0.6 million, and $0.2 million is expected to be recognized in fiscal 2020, 2021 and 2022, respectively.